Shock, but calculated. The Monetary Policy Committee raised the repo rate from 6.25% to 6.50% in its 28 September 2023 meeting, keeping inflation below the 6% target.
Banks will now borrow at higher costs, so they will hike floating‑rate loan rates to cover the expense. A 40‑lakh home loan will see its total interest rise from ₹4,867,894 to ₹5,063,945, a difference of ₹1.9 lakh. The same 50‑lakh loan will add ₹2.45 lakh to its interest. Roughly 70% of borrowers with floating rates will feel the pinch.
Borrowers face two options. Either increase their monthly EMI or extend the loan tenor to keep payments steady. Extending for a 10‑bps hike costs ₹22 lakh more than raising the EMI over the life of the loan. Banks cap tenors at the borrower’s age, forcing a rise in payments once the cap is hit. Vivek Iyer says the choice hinges on cash flow.
The hike also perks up savers, as banks raise fixed‑deposit rates to attract funds. New deposits will earn the higher rate immediately, but existing FDs keep their original rate. Adhil Shetty recommends laddering to balance liquidity and returns.
Rajesh, a 45‑year‑old electrician in Ghaziabad, has to re‑budget after a ₹1,200 monthly EMI bump. The RBI will convene again on 18 October to decide on further tightening, while banks must notify borrowers of reset dates by 15 October.